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  1. #11
    Join Date
    Oct 2006
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    Default Re: How is a Reverse Mortgage Payoff Attributed to Estates of Deceased

    One thing that I can potentially think of in this scenario is generally the person with a life estate is not permitted to encumber the property in any way. After the husband's death 1/2 of the property was a life estate and therefore she may not have had the right to encumber that half.

    I think that an attorney needs to be consulted on this issue. I don't think its a simple one.

  2. #12
    Join Date
    Jan 2006
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    38,647

    Default Re: How is a Reverse Mortgage Payoff Attributed to Estates of Deceased

    Quote Quoting llworking
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    One thing that I can potentially think of in this scenario is generally the person with a life estate is not permitted to encumber the property in any way. After the husband's death 1/2 of the property was a life estate and therefore she may not have had the right to encumber that half.

    I think that an attorney needs to be consulted on this issue. I don't think its a simple one.
    i think I’m in agreement somewhat with your thoughts. she is an owner of the home. Her life estate is only regarding the husbands share.


    At the the most I could see benefitting the op is 1/2 of the disbursements from the time the husband died until the wife died be considered a debt to the wife’s estate. That would be the 1/2 charged against the life estate. No way should the amount paid to the wife’s share be considered a debt against her estate. She was a 1/2 owner of the property and had a right to sell or otherwise encumber her share.

    I cant say if that all is even correct though.

    Nobody here has read all the pertinent documents and I believe that is required to be able to determine a real answer.
    Yes, an attorney is the right path to take.

  3. #13
    Join Date
    Jul 2019
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    8

    Default Re: How is a Reverse Mortgage Payoff Attributed to Estates of Deceased

    I agree and am aware that the surviving wife would not be allowed to borrow against the deceased husbands 1/2 interest in the property without the consent of his heirs. That would have involved loan applications, underwriting and title search that would have made it impossible to do. Technically she did not "borrow" anything after his death she simply spent money that was already borrowed and set aside in a line of credit account that amounted to a joint/survivor account. Looking at the original mortgage and loan agreement it is my belief that this is the way it was set up.

    Reverse mortgages are relatively new to the market and while not every legal aspect has been explored, I'm sure this situation has been considered by mortgage companies as RM are made to elderly people and chances are very good that one will die before all draws are made from a line of credit. If that manifested into a situation where a surviving spouse were inadvertently encumbering property where they were not allowed, wouldn't the mortgage company have some potential liability?

  4. #14
    Join Date
    Oct 2006
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    15,426

    Default Re: How is a Reverse Mortgage Payoff Attributed to Estates of Deceased

    Quote Quoting tejaswolf
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    I agree and am aware that the surviving wife would not be allowed to borrow against the deceased husbands 1/2 interest in the property without the consent of his heirs. That would have involved loan applications, underwriting and title search that would have made it impossible to do. Technically she did not "borrow" anything after his death she simply spent money that was already borrowed and set aside in a line of credit account that amounted to a joint/survivor account. Looking at the original mortgage and loan agreement it is my belief that this is the way it was set up.

    Reverse mortgages are relatively new to the market and while not every legal aspect has been explored, I'm sure this situation has been considered by mortgage companies as RM are made to elderly people and chances are very good that one will die before all draws are made from a line of credit. If that manifested into a situation where a surviving spouse were inadvertently encumbering property where they were not allowed, wouldn't the mortgage company have some potential liability?
    This situation is a bit unusual. Normally a widowed spouse ends up owning the entire home so its irrelevant if their was a reverse mortgage line of credit. Also, most people who get a reverse mortgage don't get it as a line of credit, they get it as providing monthly income. In this instance it was not taken as monthly income, and the widow only got a life estate on her husband's half of the property, the husband's heirs (I assume his separate children) got his half of the home.

    The odds are not great that there is any case law addressing the issue. There would have to be a serious amount of equity in a home to make it worth spending the legal fees to get far enough to establish case law.

  5. #15
    Join Date
    Jul 2019
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    8

    Default Re: How is a Reverse Mortgage Payoff Attributed to Estates of Deceased

    What is the difference between a line of credit and monthly income besides the frequency and amount. If this scenario were set up with monthly payments would each monthly payment be considered a "new loan" or simply a distribution from a previously established "original principal" amount that was also established for the line of credit?

  6. #16
    Join Date
    Nov 2013
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    6,296

    Default Re: How is a Reverse Mortgage Payoff Attributed to Estates of Deceased

    There is no difference. The draw on the line of credit and monthly payments neither of which change the principal amount of the loan. The difference is how the interest is computed over time and how fast the principal is drawn down to zero. A reverse mortgage pays the interest on the money taken out of the loan amount. So the more money taken out in a shorter period of time reduces the principal balance faster than smaller monthly draws.

    When the principal balance is exhausted, interest just keeps accruing on the total amount that was borrowed and has to be paid back to release the lien.

  7. #17
    Join Date
    Sep 2010
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    19,059

    Default Re: How is a Reverse Mortgage Payoff Attributed to Estates of Deceased

    As far as the loan goes they are the same whether you take a lump sum, monthly payments, or write a check on a line of credit. The interest accrues from the date the amount is withdrawn. When the borrower ceases to live in the home, the lender can then have the loan come due.

  8. #18
    Join Date
    Jul 2019
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    8

    Default Re: How is a Reverse Mortgage Payoff Attributed to Estates of Deceased

    Let’s step back for a moment and look at this at a higher level. The relationship between mortgage co., borrower(s) and property is a good place to start. Mortgage co. loans money to borrower(s) who in turn pledge their property as collateral to secure the loan. This is fairly standard practice for most mortgage loans. Reverse mortgages shouldn’t be that much different than conventional in this respect. Now let’s go up a step and examine a scenario and how the relationship is impacted.

    Mortgage company loans a married couple an amount of money and determines the maximum amount will be $250,000. The terms of the loan agreement state the borrower(s) can take advances in the form of lump sum, monthly payment, line of credit or a combination so long as the maximum is not exceeded. Furthermore, borrower(s) are considered to be both spouses or surviving spouse should one die. The contract is not changed in any way at the death of one of the borrowers. In turn, the mortgage company files a lien on the community property the couple owns as security for the loan.

    The initial draw on the loan is $50,000. Sometime after the initial draw the husband passes away. The loan agreement is still valid as no provision is made to change anything at the death of one borrower. The mortgage company is obligated to continue making loan advances to the surviving wife. The husband has left his half of their community property to his children from a previous marriage or to a charity or any other ways he could dispose of it. By state law the wife can remain in the homestead until her death and chooses to do so, drawing the remaining $200,000 for living expenses over the next several years.

    The question is what has happened to the collateral; the security the mortgage company has against this loan? Half the property is now owned by a party who might not agree to encumber it with additional loans. Somebody at the mortgage company is going to have a very bad day and should be fired for entering into a deal where half the loan security evaporated yet they are obligated to continue loan advances. I can’t believe mortgage companies would operate in this way.

    In this case there are two possible outcomes:
    1. The mortgage company is obligated to advance an additional $200,000 against a property for which only half is eligible for security. After the wife dies the mortgage must be paid or the company will foreclose. The mortgage company has a claim against the property for the full amount of the loan. Let’s say the property sold for $250,000 and there was no equity. The wife’s heirs accept that fact and go on with their lives. The husband’s heirs believe they have $200,000 in equity due to them and want to be paid. They can sue the wife’s heirs who have no assets. Or, they can sue the mortgage company for wrongfully placing a lien on their property in the amount of $200,000 after all, they didn’t agree to it.

    2. More likely it is that the entire $250,000 original principal is secured at the time the lien is filed and the property is subject to the mortgage in that amount. In this case the husband’s heirs inherit the property subject to the entire mortgage not just the original $50,000 draw as they claim.
    Again, I can’t believe mortgage companies with access to top notch legal departments would allow themselves to fall into the first outcome. Surely there are some reverse mortgage professionals on this forum who can validate one side or the other.

  9. #19
    Join Date
    Nov 2013
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    6,296

    Default Re: How is a Reverse Mortgage Payoff Attributed to Estates of Deceased

    Quote Quoting tejaswolf
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    Let’s

    Mortgage company loans a married couple an amount of money and determines the maximum amount will be $250,000. The terms of the loan agreement state the borrower(s) can take advances in the form of lump sum, monthly payment, line of credit or a combination so long as the maximum is not exceeded. Furthermore, borrower(s) are considered to be both spouses or surviving spouse should one die. The contract is not changed in any way at the death of one of the borrowers. In turn, the mortgage company files a lien on the community property the couple owns as security for the loan.
    The mortgage and the lien on the property was formed before the husband died. In that respect, nothing changes because of the distribution of the property according to the will. The surviving spouse can keep drawing on the mortgage until it is exhausted and then additional interest accrues until the redemption of the property by the heirs or by foreclosure.

    It will still be a 50-50 split on what equity is left in the account when the surviving spouse no longer lives there by death or otherwise.

  10. #20
    Join Date
    Jul 2019
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    8

    Default Re: How is a Reverse Mortgage Payoff Attributed to Estates of Deceased

    Quote Quoting budwad
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    The mortgage and the lien on the property was formed before the husband died. In that respect, nothing changes because of the distribution of the property according to the will. The surviving spouse can keep drawing on the mortgage until it is exhausted and then additional interest accrues until the redemption of the property by the heirs or foreclosure.

    It will still be a 50-50 split on what equity is left in the account when the surviving spouse no longer lives there by death or otherwise.
    Thank You

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